Asian Development Bank (ADB) on Tuesday announced it will provide $250 million to help Philippine local governments units (LGUs) deliver better and more effective public services through improved revenue generation, stronger public financial systems and regulatory frameworks, as well as increased transparency and accountability.
In a statement, ADB said the policy-based loan was approved by the ADB Board of Directors as the second phase of the Local Government Finance and Fiscal Decentralization Reform Program being implemented by the Department of Interior and Local Government, Department of Budget and Management, and the Department of Finance’s Bureau of Local Government Finance.
“Service delivery, especially in the rural areas, has lagged those of the more developed areas as rural LGUs do not have sufficient revenues,” said Stephen Schuster, an ADB principal financial sector specialist.
“Therefore, the government has prioritized a number of initiatives to assist LGUs, including distributing national resources more equitably, and increasing their capacity to raise own-source revenues to improve the delivery of health, education, housing, and other services to communities,” he added.
Under the Local Government Code, responsibility for service delivery was devolved and delegated to the local governments. As a result, local governments account for about 27 percent of total government expenditures in 2014, excluding debt amortization.
ADB said while the Internal Revenue Allotment (IRA) provides inter-governmental fiscal transfers to compensate, it is based on a formulaic approach that does not consider either the fiscal needs of the local governments or their ability to fund necessary service delivery.
In addition, over-reliance on the IRA dilutes the accountability between local governments and their constituents that is provided by an efficient tax system, it added.
The lender said the program has supported the government’s decentralization and public financial management reform agenda by addressing these constraints and helping local governments widen their own-source revenue base while making it sustainable.
It also helps local governments enhance tax collection efficiency, access debt capital markets, strengthen public financial management systems, and create a more equitable fiscal framework geared towards the achievement of inclusive growth.
Decentralization also improves governance and service delivery, with local governments becoming more accountable to their constituencies, ADB said.